Headlines from CNBC a week ago Friday read as follows “S&P tumbles Friday to post worst week since 2023, Nasdaq drops 2% for worst weekly performance since 2022: Live updates”. Oh, strike that! (we just did) as this week CNBC proclaimed the following “S&P and Nasdaq rally Friday to cap best week in 2024: Live update”. If possible, we would cue the head spinning emoji! The issue becomes when titles such as these drive responses from investors; responses that are either driven by fear or greed. Moreover, if you combine the two weeks, the S&P 500 has dropped just 0.40%, a mundane number for this day and age. The bottom line, investors must look beyond the week-to-week gyrations in the financial markets by constructing a portfolio that positions their investments according to their long-term objectives, full well knowing that such short-term moves are impossible to predict and are not actionable events.
- Given the recent inflation data as reported by the Consumer and Producer Price Indexes (see below) as well as other reports pertaining to the overall economy, we believe the Fed will announce a 0.25% cut in the Federal Funds Rate at the conclusion of its upcoming two-day meeting September 18. The main reason the Fed will most likely deliver a 0.25% cut is that core inflation appears to be plateauing at a level just above where the Fed likes. Another reason for the Fed to cut by 0.25% rather than the 0.50% that some are calling for is the potential for post-election economic dislocation a la Gore v. Bush in 2000.
“It’s The Economy…”Prices at the retail level as measured by the Consumer Price Index rose 0.2% during August (2.5% y/y), after rising 0.2% during July. The CPI has fallen from a y/y high of 9.1% during June 2022 and from 2.9% y/y one month ago.Energy prices fell 0.8% during August (-4.0% y/y) during August after remaining unchanged during July.Food and beverage prices rose 0.1% during August (2.1% y/y) after rising 0.2% during July. The cost of shelter rose 0.5% during August (5.2% y/y) after rising by 0.4% in July. According to the Bureau of Labor Statistics and reported by Haver Analytics, “nearly 90% of the increase in last month’s all items CPI was due to shelter.”Excluding food and energy, the core CPI rose 0.3% during August, after rising 0.2% during July.Over the past year the core CPI has risen 3.2% y/y, well below the peak of 7.6% in February 2022.(Source, U.S. Bureau of Labor Statistics)Prices at the wholesale level as measured by the Producer Price Index rose 0.2% during August, after remaining unchanged during July.Over the past year the PPI has risen 1.7%, down from 2.2% y/y last month, and from a peak rate of 11.7% during March 2023. Energy prices fell 0.9% during August (-8.4% y/y) after rising 1.8% during July. Finished food prices rose 0.1% during August after rising 0.7% June (2.3% y/y).Excluding food and energy, the core PPI rose 0.3% during August (2.4% y/y) after sliding 0.2% during July.Prices for Intermediate Goodsfell 0.1% in August (1.1% y/y), after rising 0.6% during July.(Source, U.S. Bureau of Labor Statistics)The University of Michigan reported that its Preliminary September Reading of Consumer Sentiment rose to 69.0% from a final August 67.9% and from a preliminary August 67.8.According to the Survey of Consumers Director, Joanne Hsu, “sentiment is now about 40% above its June 2022 low, though consumers remain guarded as the looming election continues to generate substantial uncertainty.”According to the Federal Home Loan Mortgage Corporation (FreddieMac), “mortgage rates have fallen more than half a percent over the last six weeks and are at their lowest level since February 2023. Rates continue to soften due to income economic data that is more sedate. But despite the improving rate environment, prospective buyers remain on the sidelines, as they negotiate a combination of high house prices and persistent supply shortages.” Housing will become more affordable as interest rates decline. However, prices will most likely remain high or even continue to climb from here as it is the lack of inventory that will remain a competing factor – and that will take several quarters, if not years, to solve.We Found This Interesting
- Shares of Oracle (ORCL) surged as revenue as well as earnings surpassed street estimates. Moreover, revenue from their Oracle Cloud Infrastructure (OCI) rose by 45% to $2.2 billion in the quarter as demand for its Artificial Intelligence (AI) offering was strong. In fact, the pace of growth at OCI grew faster than that of Alphabet, Amazon and Microsoft.
- Union employees of Boeing (BA) walked off the job Friday after turning down management’s 25% wage increase over a four-year period. The vote was an astounding 94.6 against and only 5.4% for the contract. Most think that Boeing will have to offer wage increases of approximately 40%.
- Speaking before the Council of Institutional Investors in Brooklyn, JP Morgan Chase (JPM) CEO Jamie Dimon said that “the worst outcome is stagflation – recession, higher inflation.” Dimon emphasized this concern by following up with “and by the way, I wouldn’t take it off the table.” Speculating, we don’t believe this is his baseline case for the economy. Rather a warning to the powers driving the economy to be wary of the possibility.
Upcoming Economic Reports scheduled to be released this week include the following, on Tuesday, August Retail Sales, August Industrial Production and Capacity Utilization and July Business Inventories; on Wednesday, August Housing Starts; on Thursday, the Weekly Report of Initial Claims for Unemployment August Existing Home Sales and the August Index of Leading Economic Indicators; Insurance and the August Producer Price Index (PPI); and, on Friday, August Import and Export Price Index and Preliminary August Consumer Sentiment (University of Michigan).
The Q2 Earnings Season is beginning to wind down. However, there remain reports that may impact market sentiment. These include – General Mills (GIS), FedEx (FDX), Lennar (LEN), and Cracker Barrel (CBRL).
General Disclosure:“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”